Honohan Says Ireland Likely to Tap `Substantial' EU-IMF Loan
Irish central bank Governor Patrick Honohan. Photographer: Andrew Harrer/Bloomberg
Nov. 18 (Bloomberg) -- Bloomberg's Elliott Gotkine reports from Dublin on European Union talks with Ireland on accepting a bailout for its national finances and the banking system. (Source: Bloomberg)
Nov. 18 (Bloomberg) -- Will Duff Gordon, senior research analyst at Data Explorers, talks about Irish bond purchases. He speaks with Maryam Nemazee on Bloomberg Television's "On The Move." (Source: Bloomberg)
Nov. 18 (Bloomberg) -- Andre Sapir, a senior fellow at Bruegel, talks about European sovereign debt and the Irish economy. He speaks from Brussels with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
The city centre and the River Liffey is viewed across Dublin's skyline. Photographer: Crispin Rodwell/Bloomberg
Irish central bank Governor Patrick Honohan said he expects the country to ask for a bailout from the European Union and the International Monetary Fund worth “tens of billions” of euros to rescue its battered banks.
Ireland will probably pay an interest rate close to 5 percent, he said in an interview with Irish state broadcaster RTE today. A final decision hasn’t been reached, he said. A 5 percent rate would be similar to that offered to Greece when it requested a bailout in April.
“It is my expectation that will happen, absolutely,” said Honohan, who was speaking from Frankfurt, where he is attending a regular European Central Bank Governing Council meeting. “It will be a large loan because the purpose of the amount to be advanced, or to be made available, is to show Ireland has sufficient firepower to deal with any concerns of the market. We’re talking about a substantial loan.”
EU, IMF and ECB officials fly into Dublin today to study the books of the country’s lenders as European policy makers put pressure on Ireland to accept a bailout to prevent contagion spreading through the euro area. Honohan is the first Irish official to say publicly that the country will need aid. Finance Minister Brian Lenihan said after a meeting of euro-region finance ministers on Nov. 16 that aid was “not inevitable.”
‘Take the Money’
Irish Energy Minister Eamon Ryan said today that Honohan had “put it well” and that he had “no problem” accepting aid on the right terms if it was needed. RTE said an announcement on aid could be made in two weeks, without citing anyone.
“There is no point in being in denial anymore,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “We need to take the money and get on with it.”
Irish bonds rose after the remarks, pushing the yield on the country’s 10-year debt down 10 basis points to 8.22 percent as of 9:43 a.m. in Dublin. The premium investors charge to hold the bonds rather than benchmark German bunds narrowed to 537 basis points from 554 basis points yesterday. The so-called yield spread reached a record 652 basis points on Nov. 11.
“The purpose of this whole exercise is to provide reassurance to international markets, to our partners in Europe, that the policy stance that the government is adopting is designed, and will be effective in, getting us back on a stable debt trajectory,” Honohan said. “They will also want to provide assurance” that the banks have “adequate capital resources.”
‘Spilling Over’
EU Economic and Monetary Affairs Commissioner Olli Rehntold reporters on Nov. 16 that Ireland’s banking woes are “spilling over to the sovereign.” Euro-region finance ministers said in a statement the same day that they will take “determined and coordinated action to safeguard the financial stability of the euro area, if needed.”
“The question is the size of the program,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London, who estimates any loan would have to be about 90 billion euros to 100 billion euros. “Even with a package, it won’t solve the problem in the longer run. Markets could well start to focus on Portugal or Spain.”
Honohan said it’s “true that the banks need additional confidence” even after the government pumped billions of euros into lenders including Allied Irish Banks Plc and Anglo Irish Bank Corp. “Our efforts, the huge sums put in by the government to support the banks, have not generated sufficient confidence yet” among investors,” he said.
ECB President Jean-Claude Trichet may make his first public comments on a potential Irish bailout when he speaks on a panel at 2:30 p.m. in Frankfurt today. Trichet is disappointed that Ireland didn’t apply immediately for aid two days ago, the Irish Times said today, citing an EU diplomat
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